ISM reports March non-manufacturing activity remains on solid footing

Non-manufacturing activity remained in solid shape to finish the first quarter, according to the Institute for Supply Management’s (ISM) Non-Manufacturing Report on Business, which was released today.

The index ISM uses to measure non-manufacturing growth—known as the NMI––fell 0.7% to 58.8 in March (a reading above 50 indicates growth), which is slightly below February’s 59.5 and also below January’s all-time high NMI reading of 59.9. This reading indicates non-manufacturing growth has now been intact for 98 consecutive months, with the overall economy growing for the 103rd consecutive month.

March’s NMI is up 1.1% compared to the 12-month average of 57.7 and is 0.6% below the first quarter average of 59.4.

ISM said that 15 non-manufacturing industries reporting growth in March, including Mining; Transportation & Warehousing; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Real Estate, Rental & Leasing; Wholesale Trade; Finance & Insurance; Management of Companies & Support Services; Professional, Scientific & Technical Services; Accommodation & Food Services; Public Administration; Construction; Health Care & Social Assistance; Other Services; and Utilities, with Educational Services and Information both contracting.

The report’s key metrics, including the NMI, were mixed in March, including

business activity/production was down 2.2% to 60.6 and growing for the 104th month in a row;
new orders were down 5.3%, growing for the 86th consecutive month;
employment rose 1.6% to 56.6 and growing for the 49th consecutive month
supplier deliveries increased 3% at 58.5 (a reading above 50 indicates contraction) and slowing for the 26th straight month;
prices increased 0.5% to 61.5, up for the 25th consecutive month; and
inventories were flat at 53.5
“The index was slightly pulled down by a cooling in new orders, which was hard-pressed to sustainable, given where it was the prior month,” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview.

Comments submitted to the report by ISM member respondents were mixed, with a fair amount of attention being paid to tariff-related news.

A construction respondent pointed to the unbelievable amount of market volatility in construction-related materials that started with lumber continues with the tariffs on steel and aluminum, adding that accurate, long-term planning has become incredibly difficult, as distributors that historically held costs for at least 30 days are now, in some cases, committing to only seven days, as prices can change drastically in that time. And a finance and insurance respondent said that the interest rate hike and tariffs are likely to impact cost and price of goods and services.

“I think tariffs are affecting the psyche a bit,” said Nieves. “If you think about it, other than the tariffs for imports in place, everything else is just potential at this time. So nothing has been enacted, that could be months down the road. With China now countering with its tariffs, some feel that this is a negotiation before the dust settles a bit. But even if it is not, there is the question of what the true input costs will be and what is the resulting delivered end user costs and how much of a percentage is that going to affect? Even though the markets are very volatile in terms of how they take in information, this [ISM] report focuses on what is happening with companies, not what may happen.”

Nieves described the current state of non-manufacturing in the first quarter as one which is still going strong, akin to the fourth quarter of 2017.

One ongoing issue, he said, is capacity tightness related to containers and trucks and drivers, which needs to be addressed.